Investment in Latvian real estate sector has been growing at a moderate yet steady pace, in some investment segments yield has approached all-time lows, as observed by one of the leading Latvian real estate companies Kivi Real Estate. Market players are increasingly considering alternative investment options. Interest in purchasing regional shopping centres, specific industrial objects and vacant lease spaces has been growing along with the number of the relevant transactions.
Low-risk investment objects are sought on a regular basis. Traditionally, investors are willing to buy leased properties, which have international anchor tenants and long-term lease contracts. “Private investors and private investor groups compete with institutional investors for the same real estate, which has led to price increases in premium office building and shopping centre segments. It is therefore only logical, that under such circumstances market players are looking for sufficiently safe alternatives, that offset the risks with high rates of return on investments, i.e., above 9%, points out Ēvalds Pavlovs, Partner of Kivi Real Estate.
Regional shopping centres outside Riga represent a growing investment segment. The companies engaged in providing groceries and everyday services have been running successful businesses there in spite of demographic trends or low purchasing ability – owing to the stable demand for necessity goods. Transactions in such objects, depending on their location and amount, may reach as high as 13% in annual returns. “Industrial real estate objects represent a different segment. Usually, companies have made large financial investments in their premises, and transporting of their production equipment is next to impossible or complicated. Consequently, purchasing of a production facility, a small warehouse or a technical maintenance facility, tenant replacement risks are often lower than in the traditional lease segments”, says Ē. Pavlovs.
For investors who are willing to actively engage in the management of real estate upgrading processes, vacant premises might warrant their attention. “Attracting designers, professional facility managers and real estate agents and spending a relatively small amount of money and time may result in a very appealing lease object. By engaging in some creative activities and pursuing a targeted strategy, the new owners can shorten lease periods significantly and raise the prospective lease fees. “
By investing in less demanded segments, investors may find themselves in a more challenging position of attracting bank financing, and more often than not, upgrading of the real estate would require additional financing. However, according to Ē. Pavlovs, the key benefits include a higher rate of return on investments (in the rage 9 – 13%), greater flexibility of the terms and conditions of transactions, as well as the owner's ability to generate high value added in terms of their financial and time investment.